US Congress prepares to vote on financial bailout plan

September 29th, 2008 - 3:07 pm ICT by IANS  

Washington, Sep 29 (DPA) The US House of Representatives could vote later Monday on a massive deal to rescue the US economy from the brink of financial meltdown.Legislators forged an agreement Sunday on the measure, which is intended to thaw out frozen credit lines with the government purchase of soured mortgage securities. A vote in the Senate could be held later this week.

Details of the deal emerged throughout the day Sunday.

During week-long negotiations on the $700-billion proposal, legislators reduced the initial cost to $350 billion with the remainder to be authorised later.

Other changes to the plan originally drafted by US Treasury Secretary Henry Paulson included curbs on executive pay and severance, so-called golden parachutes, for top officials at companies that seek to sell mortgage securities to the federal government.

The government would also have the option of taking equity stakes in some firms to allow taxpayers to recover some of the bailout costs in cases in which federal help leads to eventual profits or higher stock prices.

A rescue oversight committee has also been added to the bailout legislation in response to demands from members of both the majority Democrats and minority Republicans.

Credit has seized up as lenders become reluctant to dish out new loans during a crisis sparked by losses on subprime mortgages.

US President George W. Bush called the measure “urgently needed to address a crisis in our financial system that threatens the entire US economy”.

He called the weekend compromise “a very good bill” that provides “the necessary tools and funding to help protect our economy against a system-wide breakdown”.

“This plan sends a strong signal to markets around the world that the US is serious about restoring confidence and stability to our financial system,” Bush said. “Without this rescue plan, the costs to the American economy could be disastrous.”

Conservative House Republicans had been the main roadblock to the rescue plan. They wanted a government-run insurance programme for healthy mortgage assets and demanded that Wall Street carry more of the burden if the government doesn’t recover its money.

Bush, who has less than four months in office, has little remaining clout with his fellow Republicans in Congress, who already blame his low approval ratings for their loss of a majority in congressional elections two years ago.

House Speaker Nancy Pelosi, leader of the Democrats in the lower chamber, said the changes sought “to insulate the American people and Main Street from the crisis on Wall Street”.

“People have to know that this isn’t about a bailout of Wall Street,” she said. “It’s a buy-in so that we can turn our economy around, and we can help people who are saving for their pensions and retirement, for the education of their children, saving so that they can stay in their homes, small businesses can get credit, so they can continue their transactions.”

The breakthrough was announced just after midnight Sunday by weary congressional leaders.

Paulson, a top Wall Street investment banker until being named to head the Treasury Department two years ago, said the deal would be effective in stabilizing the marketplace and protecting taxpayers “to the maximum extent possible”.

Sunday’s agreement followed nine days of tough negotiations.

Democrats are worried about the political fallout of the unpopular Wall Street bailout as expressed by constituents via angry e-mails and phone calls to legislators. The centre-left majority has insisted that Republican legislators get solidly behind the plan.

Two weeks of financial turmoil in the US have sparked havoc on world markets. Bush has made nearly daily pleas to Congress and the US public to understand how near the country was to a financial calamity.

The two new concessions in the deal announced early Sunday were made in response to demands by House Republicans.

One would require Wall Street to make up the difference if the government does not recoup its $700-billion layout within five years.

A second concession requires the government to set up an insurance programme for Wall Street to guarantee the estimated $2 trillion in mortgage assets that are performing well but could be threatened by the downward spiral of bad loans.

The government hopes the bargain-basement assets it buys will eventually regain value in a calmer, stabilized market so it could recoup taxpayer costs as the slumping housing market recovers and the rate of foreclosures eases.

Paulson has even said that the government could eventually turn a profit.

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